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I think I hear from Rogoff "don't do what the US did". Did we not lend our balance sheet to the banks and private sector to transfer the risk to the tax[payer? Of course we did. Further, by allowing further obfuscation of this policy, the Fed rigged the carry trade market allowing banks and others to borrow short and lend long with impunity.
The result of all this is shifting the losses from where they should have been, (bondholders and stockholders of the private sector lenders), to the taxpayer. First through a direct transfer and followed by Fed policy which further hurts the many for the few.
Ben's defense was the same, "if we didn't do this look at how much worse it would have been. Rates would surely go even lower if the broader economy worsened".
Well, so much for free market thinking. New capital would have filled the gap with a lower basis thus creating potential for higher, faster growth.
Krugman may puzzle many but at least he says the rich need to "give" to the poor. You seem to go out of your way to yank his chain and it's unbecoming. Besides, it's hard to argue the inequality caused by the many bailing out the few. Maybe you believe this current income distribution is deserved. If so, say so.

Rogoff mentions the need for “stricter capital requirements”. Though that is something we should all aspire, we need to be careful of how we get from here to there. It is amazing how many who preach government profligacy (not Rogoff’s case) at the same time scream out of bank-credit austerity.

What the Kurowski school of thought recommends (☺) is to get rid completely of the credit-risk weighted capital requirements for banks, those which distorts the allocation of bank credit by re-clearing for the perceived credit risk already previously cleared for by banks.

If regulators in order to show us they work absolutely must distort, then let it at least be for a better purpose… like capital requirement based on the potential of job creation ratings.

What really happened with crisis is that private losses (banks toxic products) turned into European nations losses through Greece.
So what is happening right now is that people are paying private losses (through debt, social benefits cuts, etc.) so yes, nothing free in that!
Debt is also used in another way (except transferring losses from banks to people), that is to manipulate economies in EZ imposing useless austerity, jeopardizing its economy as whole.
As it has turned out now, previous years was nothing more than setting the background (with arrangements, mandatory giving up national policies and national business sectors in the name of 'common policies', social dumping, dumping) for cash flowing from periphery to core. Now its payback time but only periphery is paying.
In this turning point there is no other way than the real culprits to face their losses (and stop transferring them to nations) and EU to be a real -in every aspect- union not only monetary.

Rogoff's approach would (probably) have been in the correct (fair) path, though ...the devil is in the details and since his basic approach (to which I agree) implies blame for both lenders and borrowers, it would be quite hard to implement and to adhere to its implications for the financial structure of the eurozone.

But, the real problem with Rogoff's solution is that it would have been wishful thinking to expect; in fact it has been, though. many in Europe have been expecting even elements of it. Reality reveals that power structures are impenetrable by the EU/EZ political institutions and Rogoff is knocking on the wrong door, by proposing a solution for the wrong problem.

There will not be any change in the current situation. Change will come from political change and will be towards slow breakup of EZ. The only potential benefit of such arguments, as those made here, could be for the aftermath of the breakup. Still, this would make sense if the US were to change the power balance at that point, which is highly doubtful.

Interesting analysis. But it seems to avoid the question about any of this trouble being caused by the Euro system that is run by a Eurogroup that seems very disfunctional. Finance ministers! These the guys who's job it is to say 'no' at home, and keep their hand on the purse. They only count their Euros. These are not people selected for having a vision, thinking about common interests, certainly not those beyond their own country. How can these men (all men) join together to develop a common vision of the future, and help design a shared financial system that will make all of Euroland grow the quality and education of its human resources and infrastructure, and the welfare of its people? Sadly, the Eurogroup president has not helped the Eurogroup to exceed these expectations.. he's made it worse by choosing sides in a power game, in stead of easing communication of ideas. And all of this was kept behind closed doors.

The European Commission does seem to have an eye for the bigger picture, but the Eurogroup can afford to ignore them. The European parliament does have more democratic authority, but is not involved. It should be easy to turn the MEP's of Euro countries into a 'Euro parliament', where more open deliberation may be possible.

You don't give the free lunch people enough credit :) Our argument is that flows matter a lot and stocks not so much. During the boom money flowed from periphery to core, which was good for the real economy on both sides but the flow was too fast. Especially the periphery couldn't convert the flow to much durable value beyond consumption. So we agree that the rate of flow was unsustainable and should have been held back.

This flow also created positive stocks (wealth) at the core and negative stocks (debt) at the periphery. The austerians demand that the flow now be reversed and the stocks balance out. They want to set a timetable for debt repayment. We agree that for sovereign debt that is counterproductive to infeasible.

So the question is how to make the stock of debt irrelevant, and not damage the stock of wealth too much. You advocate debt write-off and an accounting transfer of wealth into banks to cancel it. Fair enough. Krugman and the free lunch camp advocate parking the debt stock indefinitely at the central bank at near-zero rates, as the Fed and the BoJ are doing with their economies' debt stocks. I don't think these views are that radically opposed.

Well, in Rogoff's approach there is blame for both lenders and borrowers, as the lenders have to pay (at least for their banks) and the borrowers have to accept gifts. This leaves room for institutional changes of the eurozone, to address such circumstances in the future.

In the "free lunch" approach, there is none to blame: it's as if nothing happened and the eurozone, supposedly, has an unlimited buffer of devaluation to count on overall European society cost. This is (a) not correct and not the real subject for blame; and (b) does not provide any motivation for eurozone institutional improvement.

Great article. Key point is the need to institutionalize the IMF's recent position on Greece's debt, through sovereign bankruptcy arrangements. The IMF is drifting towards irrelevancy. Let it develop and oversee the sovereign bankruptcy arrangements Rogoff is calling for.

Again, this article is proposing a solution that is too simplistic -- just forgive debt -- without considering the overall context of QE, immigration, convergence of middle income Euro area states to the income levels of the EU core. Debt relief alone won't solve Greece's problem: http://www.huffingtonpost.com/edmund-s-phelps/debt-relief-greece-problems_b_7781624.html

But Rogoff isn't saying that debt forgiveness alone is a solution is he? Rather, he's saying that it's one necessary component of an integrated solution, the whole of which needs to be built into a formal sovereign bankruptcy mechanism.

That sounds quite correct to me.

I'd agree with your point though that not enough attention is being paid in this article to the need for an underlying philosophy of distributive justice that is shared across the whole EZ. The problem is by no means, in my view, purely economic.

Above all,under globalization process, if Greek entrepreneurs can bring out breakthrough business that s global market capitalization, Greek economy can recover faster than expected. govt Aid is not the end of the road.The country's 'wealth makers can build and help the country recover @better speed.

Please not that the revolving doors and the corruption still exist at large in Spain. And the economic "growth" has been done at the expense of the general population and salaried taxpayers while corporations are contributing with 65% less taxes than in 2007.

With all due respect, these are shallow arguments. Every country in the EU/EZ has different type of problems that will take years to put right, assuming of course the right circumstances come along. In the cases you mentioned, making a bad situation worst is not a remedy. The EU has many fundamental problems that need to be resolved first, some of which are historical, some others are cultural. One must have two plans in place that would run parallel to one another: Plan 1: The historical / cultural issues are well known and must be resolved at the political level only (with or without the involvement of the EU civil communities) and at the same time create and implement plan two. Plan 2: Current / Future issues such as structural, fiscal and other reforms, growth measures and targets, contingency plans, etc. must be dealt with by an independent body consisting of technocrats, academics, entrepreneurs, people from the financial services sector, etc. Plan 2 and for it to work must not be politicised and must be put above the narrow considerations of sovereign governments. Regarding the Troika, their visits to Greece are a waste of time. Greece is part of the EU/EZ structure and has been relying on handouts since joining the EZ. The structural flaws in the EZ financial system must be dealt with first. For this, the Troika must conduct its work at the ECB and in Berlin where most of the money is being printed and underwritten. No one can pretend to know fully the structural and cultural problems of another country, and therefore no one can impose specific policies for implementation. The last 5 years of the Troika’s imposed reforms are a clear example. Reforms are better left to the EU sovereign states with an oversight by the ECB and the IMF (or preferably to any delegated independent / non-political body). All other financial / political or semi-governmental institutions within the EZ that have a vested interest and have been dropping fuel on already raging fires must not take part in any oversight but rather stay out of it and focus on getting the economies of their own countries on the right footing.

That the private bondholders should have taken the hit from bank failures is correct and (is) the base reason for the onset of the problem. The structure of the EU banking system is incorrect, a well known fact, but does not override the fact that the bondholders should have absorbed the losses. We all know this is true, and we all know that the 1% will do it again...so suck it up.

It does seem remarkable that Professor Rogoff doesn't mention the need to dismantle (or at least impose some discipline on) a state's oligarchy (its "`1%") in his prescription for "the way forward."

In his diagnosis, he writes "and oligarchs have disproportionate power to protect their interests." That certainly seems to have been the case in Greece, where the oligarchy has reportedly moved in excess of 100B euros out of the country since 2012. Some have even argued that action on the Greek crisis has been intentionally delayed so that those transfers could take place.

So why is there is no mention of those same oligarchs in his "way forward?"

I agree fully with Rogoff's argument that a structured hybrid approach to sovereign debt issues is required that seeks a balance between reform and relief. But I would add that that such an approach needs to hold the debtor's extremely wealthy to account, along with the unemployed recent graduate and the retired school teachers. The Greek rejection of an 8% special tax on wealth over 500,000 euros is a travesty.

If you create a monetary union with (net) exporter and (net) importer countries you create trade imbalances but cannot equalize them without causing a gdp drop because there is no exchange rate between the two zones.

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